Courtesy Big Government:
The IRS, which of course knows what is best for you, has a perfect solution to the mountain of debt currently facing the federal government: why, raise everyone's withholding rates, of course! You can verify this for yourselves, thanks to the IRS's knack for creating publications about every known tax topic up to and including something called the "Capital Construction Fund for Commercial Fishermen" (Publication 595...who knew?). The withholding information may be found in the IRS's website as well: here for 2009, here for 2010.
I checked, thanks to the fact that I had to run my own payroll in the absence of literally everyone else in the office this week, and sure enough, my federal withholding has gone up $8 per paycheck.
But Snowed, that's chump change! Yes and no...for those of us who subscribe to Dave Ramsey's pretty darn good idea of earmarking where every single dollar you bring in is going, losing those eight dollars means having to retool the budget. In my case, that most likely means eight dollars less per check will be going to retire my own mountain of debt. (I, at least, know enough when in a hole to stop digging.)
So, Snowed, are my taxes going up? President Obama promised they wouldn't! As much fun as it may be to blame President Obama for everything, no, your taxes are not going up, to the best of my knowledge. The amount of withholding has changed, but I don't believe that the tax tables themselves have changed. What this means, basically, is that you are now either going to have a smaller tax payment in April 2011, or you will get a somewhat larger refund (assuming everything else stays the same as in 2009). The way I view this is that it means I am loaning a little more of my money to the federal government, interest-free, for a year. That's not cool.
So what should I do? You don't necessarily have to do anything. You could always file a new Form W-4 and change your withholding, perhaps to claim an additional allowance. (Aside: why do the IRS worksheets always tell me to claim about three less allowances than I ought?) What I, and others, recommend is that you set your own withholding up so that you either get a very, very small refund or owe a somewhat small amount. (The IRS charges penalties if you owe too much at the end of the year, so be careful there.)
As with all financial matters, it's always good to consult with your own accountant or financial planner. (Note: the author's father is one of those financial planners, so if you're looking for one...) Just don't be surprised when you get that first paycheck of the year and see that it's a little bit smaller.